Audit committees: Making best use of audit inspector publications

While publications and resources for audit committees exist aplenty, it’s up to the audit committee chair to ensure that these resources are used effectively and in the appropriate context.

The United States Public Company Accounting Oversight Board (PCAOB) recently issued its first Audit Committee Dialogue. The Dialogue highlights key areas of recurring concern in PCAOB’s inspections of large firms and certain emerging risks that PCAOB sees.

Publications such as these are also issued by the Canadian Public Accountability Board. They can be useful to audit committees in their oversight because they identify relevant audit quality issues and provide questions that audit committees can ask of the external auditor. However, I believe that there are some practical considerations for audit committees to make best use of these resources.

The first is ensuring that the questions are directed at the appropriate parties. The publications focus on the interactions between the audit committee and the auditor. In my view, audit committees would do well to consider if some questions should instead be posed, or also be posed, to management. For example, the audit committee may be concerned whether or not the estimated effects of a changing market place are reflected in the financial statements. It is important for the audit committee to obtain management’s, not just the auditor’s, perspective on this question.

Secondly, I have seen lists of questions on an issue where individual questions are relevant to different audit committee activities, whether it be review of the overall audit strategy prior to the audit commencing, monitoring the execution of the audit or conducting a periodic comprehensive review of the auditor every five years. So, it may not be effective for the audit committee to simply work through the questions in the order they are presented in a publication. Some thought may need to be given to considering when responses to the questions will be of most benefit in the context of the audit committee’s responsibilities, and this may be at different meetings in the audit committee schedule. There is a balance between asking all questions on an issue at one meeting and asking the right questions at the right meeting.

Thirdly, in my view, it would be useful for the audit committee chair to discuss the publication in advance of the audit committee meeting, separately with each of management and the auditor, to get their perspectives on the issues to be covered. This will provide the audit committee chair with insights on whether the committee needs further information to be presented by management and the auditor to enable a good discussion.

KEEP THE CONVERSATION GOING

Share your experiences about how audit inspector publications have been discussed at your audit committee. What worked well for you? What were the challenges to having an effective discussion?

Post a comment below; or email me directly.

CPA Canada’s Audit Quality Blog is designed to create an exchange of ideas on developments and issues in global audit quality, as well as their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

Highlights

Update your knowledge and strengthen your network at this must-attend conference covering the most important issues and trends affecting audit committee members.

It’s probable that someone you know is deep in debt. If you are observant, you might see one of these seven signs.